Google Will Spend $250 Million To Settle Investor Suit Over Pharma Ads

Google Inc. has agreed to spend a total of $250 million on product quality control to end a suit brought by shareholders after its $500 million settlement with the U.S. government for allowing Canadian pharmaceutical companies to advertise on its site. The settlement, which remains subject to Google stockholder and court approval, would end claims that Google and its directors breached their fiduciary duty by facilitating illegal imports of prescription drugs through the advertising program AdWords, leading to a $500 million settlement with the U.S. Department of Justice (DOJ).

As a part of the agreement, Google agreed to launch a “user safety initiative,” the goal of which it will be to frustrate and disrupt the operations of rogue pharmacies online through messaging campaigns and cooperation with law enforcement and regulatory agencies. The company will dedicate $50 million per year over the course of five years to the initiative. A Google spokesman said in an e-mailed statement:

We’ve been investing very significantly to fight rogue online pharmacies, and have stopped millions of ads from appearing. This settlement will continue and expand these ongoing efforts to keep users safe online.

The Plaintiffs alleged that Google was aware as early as 2003 that its AdWords marketing program might be violating the Federal Food, Drug and Cosmetic Act or the Controlled Substances Act by allowing Canadian pharmacies to advertise services such as shipping prescription drugs to the U.S. But its officers issued misleading financial statements from 2003 to 2009 that did not include revenue from the improper ads, according to the Plaintiffs allegations.

The shareholders initially filed three actions in 2011, five days after the DOJ announced that Google would settle a criminal investigation into the company’s AdWords service. According to the DOJ, AdWords accepted advertisements from online Canadian pharmacies that illegally sold prescription medications to U.S. Customers. The DOJ said that even though Google had taken steps to block pharmacies in countries other than Canada from advertising in the U.S. through AdWords, it had continued to allow Canadian pharmacies to target U.S. consumers through online ads. The directors did not ban the ads until after the company became aware of the DOJ investigation, the shareholders said. The three cases were later consolidated.